electronic banking and technological development in

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RUAHA LAW REVIEW (RLR)

VOLUME 2, NUMBER 2, 2014

FACULTY OF LAW, RUAHA CATHOLIC UNIVERSITY

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1

Electronic Banking and Technological Development in Tanzania: A Legal

Analysis

Rosemary Mukama

Abstract

This paper reviews banking laws in Tanzania in relation to electronic banking and

technological development. It is more than a decade now, since Tanzania engaged in the use

of electronic banking. Since electronic banking has higher risks and much used by banks,

communication companies and their customers, it is just reasonable to have the law

adequately address and protects the electronic banking transactions. Unfortunately, banking

laws currently in force are inadequately provide for electronic banking. For example the Bank

of Tanzania Act (BoT Act) gives power to the Bank of Tanzania to: establish payment

clearing and settlement system; and; make rules and regulations to govern the payment

system, but the clearing and settlement system referred designed to save inter-bank

transactions and therefore other types of electronic banking are not covered. Furthermore, the

rules and regulations bind only participants or members of such payment clearing and

settlement system. The BoT Act also gives power to the minister responsible for financial

affairs of the United Republic of Tanzania to make regulations so as to give effect to the

objectives of the BoT Act. However, regulation on electronic banking has not been made.

In 2000 the BoT issued guidelines on payment card to regulate payment through

Automated Teller Machine (ATM) and Point of Sale (POS), but the guidelines have no legal

force. This situation definitely create some practical legal issues that need attention. It is in

this spirit that the author embark on analysing the Tanzania legal regime on electronic

banking. The author employed library research used to acquire primary data by surveying the

laws of Tanzania relating to banking and also for obtaining secondary data through reading of

books, journals, articles and websites. Furthermore, the author have also employed interview

banking personnel to enrich primary data. This study shows that, due to inadequancy of the

Assistant Lecturer in Law, University of Iringa, P.O BOX 200, Iringa, Tanzania.

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law regulating electronic banking, the undertakings emanate some practical issues which calls

for an amendment of the Tanzania legal framework or the enactment of specific legislation to

not only electronic banking, but also other cyber laws which will facilitate and protect

electronic banking and the banking system in general.

Introduction

Electronic banking is an exchange of funds in a paperless form between banks,

business entities and customers.1 It may also be referred to as electronic fund transfer (EFT),

e-banking or e-finance.2 In electronic banking, funds are transferred via electronic means such

as telephones, telexes, facsimiles, telegraphic transfer3 mobile phones and computers.4 It

includes fund transfer through automated teller machines (ATMs), cheque truncation, and

point of sale transactions etc.5 It involves an application of the Information and

Communication Technology (ICT) in transferring fund.6 Generally, electronic banking

comprises with four primary channels namely; EFT, electronic data interchange (EDI),

electronic benefits transfers (EBTS) and electronic trade confirmation (ETC).7

It has been evidenced that electronic banking changes the way of doing business.8

For example; banking working hours has now changed. The customers can bank twenty four

hours a day and seven days a week, a bank customer can deposit or withdrawal cash from his

or her account without facing the bank teller and banks. Banks are now sharing customers as

1A. Mollel and Z. Lukumay, Electronic Transactions and Law of Evidence in Tanzania, Peramiho Printing Press,

Peramiho 20082, 5. 2Mollel & Lukumay, supra, note 1; M. Hapgood QC, Paget's Law of Banking, Lexisnexis, Butterworths 200412,

285. 3Telegraphic transfers mainly used in wholesale payment and it is also involves money orders and GIRO which

used in retail payments. However, banks utilize intra-bank communication networks using VSAT leased lines

and dial up telecommunication systems to transfer inter branch payments electronically. (Bank of Tanzania,

“Payment System in the Southern African Development Community – Tanzania Chapter”, 9. Available at

“http://www.bot-tz.org” accessed 16 December 2014). 4 B. A. Bakar, International Finance: An Arena of Level Playing Field, Thrust Publications, Dar es Salaam 2009,

4. 5 Basle Committee on Banking Supervision (BCBS), “Risk Management for Electronic Banking and Electronic

Money Activities” 1998, 3. 6 “http://www.bis.org/publ/bcbs98.htm” (accessed 30 March 2011); Mollel & Lukumay, supra, note 1, 3. 7 T. Glaessner et al, “Electronic Security: Risk Mitigation in Financial Transactions – Public Policy Issues” the

World Bank Financial Sector Strategy and Policy Department, July 2002, 4. Available at

“http://www1.worldbank.org/finance/” (accessed 16 July 2011). 8 D. Palfreman, Banking: The Legal Environment, Pitman, London 1990, 258; A. J. Mambi, ICT Law Book: A

Source Book for Information & Communication Technologies and Cyber Law, Mkuki na Nyota, Dar es Salaam

2010, 120.

http://www.bot-tz.org/

http://www.bis.org/publ/bcbs98.htm%5C

http://www1.worldbank.org/finance/

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for instance a Barclays bank customer with a visa card may transact through National Bank of

Commerce (NBC), CRDB Bank PLC or any other bank's ATM. It is also involves more

parties in transaction as compared to traditional banking. For example parties to electronic

banking includes bank, customer, electronic system provider, electronic clearing house etc.

However, it should be noted that, “electronic banking does not open up to new

risk categories rather it modifies existing risks and create new risk management and

prevention challenges”.9 Furthermore, banking sector is very crucial input to the monetary

intermediation for the economy of any country and due to the fact that, the banking business

at large extent done electronically, the law has a role to play as part of functioning

infrastructure.10 Yet, to date there is no adequate law regulating electronic banking in

Tanzania as the banking laws currently in force that are applicable to the traditional banking

also extend its application to the electronic banking. These laws are; the Bank of Tanzania

Act, Act No. 4 of 2006 and the Banking and Financial Institutions Act, Act No. 5 of 2006.

The only place where these legislation making reference to electronic banking, is in

expression of the powers and functions of the BoT. The law provides;

“The Bank shall regulate, monitor, and supervise the payment, clearing and

settlement system including all products and services thereof; and conduct

oversight functions on the payment, clearing and settlement systems in any

bank, financial institution or infrastructure service provider or company.

The Bank may participate in any such payment, clearing and settlement

systems; establish and operate any system for payment, clearing or

settlement purposes; and perform the functions assigned by or under any

other written law for the regulation of payment, clearing and settlement

systems”.11

It is in the spirit of this provision, that the Bank of Tanzania has from time to time

make circulars, guidelines and directives to regulate electronic banking in Tanzania. It has

also made rules and regulations for the same objectives and it has even participated as a host

of electronic clearance houses. The two pieces of legislation are complemented by other

9 Central Bank of Netherlands, “Provision and Guidelines for Safe and Sound Electronic Banking”, December

2007, 8; Basle Committee on Banking Supervision, “Management and Supervision of Cross-Border E-banking

Activities, 2003, 6. Available at “http://www.bis.org/publ/bcbs98.htm” (accessed 17 July 2011). 10 G. Heinrich, “Operational Risk, Payments, Payment Systems, and Implementation of Basel II in Latin

America: Recent Development”, 2006, 1; Heinrich is the Chief Representative, BIS Representative Office for the

Americas, Mexico City. 11 The Bank of Tanzania Act, Act No. 4 of 2006, [hereinafter “the BoT Act”], Section 6 (1) and (2).

http://www.bis.org/publ/bcbs98.htm

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pieces of legislation in harmonization of electronic banking transactions.12 Furthermore, the

rules and regulations put in place by the electronic clearing houses and settlement systems

bind only participants or members of such clearing and settlement systems;13 generally, the

law is superficially cover the aspect of electronic banking. The outcome of this legislative

vacuum is the existence of practical legal issues such as: electronic cheques are not legally

recognised unlike other methods of payment such as cash and paper-money; there is

vagueness as to legal rights and obligations of parties in electronic banking transactions. This

is because, rights and obligations conferred by the guidelines issued by the Bank of Tanzania

(BoT) are uncertain with no legal force; there are some problems associated with admissibility

of the electronic records and authentication of electronic signatures before the court of law;

and; there is a higher possibility of cyber crimes going unpunished. These may include but not

limited to; message interception, violation of data protection, financing terrorism, money

laundering, interfering with computer system which may cause identity theft such as phishing,

spoofing and e-fraud.14

In this piece of work therefore, the author embark on making a detailed legal

analysis on practical issues of electronic banking which may be an obstacle to the electronic

banking transactions in Tanzania; the consequences thereupon and provides the solution of

the analysed practical issues while reveals the reason(s) as to why up until now Tanzania do

not have adequate law governing electronic banking or any other cyber law for that matter

which could adequately address and protect electronic banking transactions. To achieve the

aforementioned, this paper covers the aspects of; historical background of the electronic

banking, legal framework of electronic banking in Tanzania, practical issues on electronic

banking in Tanzania, and finally conclusion and recommendations.

12 These includes; Capital Markets and Securities Act [Cap 75 R.E 2002], The Companies Act, Act No.12 of

2002, The Evidence Act [Cap 6 R.E 2002], The Law of Contract Act [Cap 345 R.E 2002], The Electronic and

Postal Communications Act, Act No. 3 of 2010, The Anti-Money Laundering Act, 2006, The Proceeds of Crime

Act [Cap 254 R.E 2002] and The Bills of Exchange Act [Cap 215 R.E 2002]; and also Rules and Regulations

made by the Bank of Tanzania to regulate inter-banks electronic transactions. 13 Tanzania Inter-bank Settlement System (TISS) Rules and Regulations, 2003, Section 3. “These Rules and

Regulations shall apply to all TISS participants for the transactions in the TISS and are binding to the TISS

participants by the “Agreement for participating in TISS” signed by the TISS participants.” Mbeya Electronic

Clearing House (MBECH) Rules and Regulations, 2008, Section 1(4) (iv). “The Clearing Rules and Regulations

are binding between the member banks and are designed to facilitate inter-bank cheque clearing.” 14 Mambi, supra, note 8, 124.

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1. Historical Background of Electronic Banking

The use of electronic banking can be traced back to 1950s in Western countries

when electronic message transmitters and clearing houses used magnetic ink character for

cheques.15 This was possible because of the discoveries in the ICT.16 Due to such

development of technology in information and communication sector, the way of doing

business around the world took another turn as Kofi Atta Annan17 once said “information and

communication technologies (ICTs) have the potential to profoundly change global trade,

finance and production. By making businesses more competitive and economies more

productive...”18

Clearing houses and electronic message transmitters adopted this technology in

banking operations includes; Society for Worldwide Interbank Financial Telecommunication

(SWIFT), Master Card Company (MCC), Visa Card Company (VCC), Dyna Card Company

(DCC) and others. These companies facilitate payments settlement internationally.19 For

example, a customer of CRDB bank who owns a master card, when transact by using a master

card at a point-of-sale in London, master card company is responsible for settling such

payment from the customer account in CRDB bank.20 However, this can only be possible if

CRDB is a member of Master Card Company.

In Tanzania, electronic banking operations started in the late 1990s.21 The banking

services offered electronically includes; payment through cards i.e. credit cards, debit cards,

and pre-paid cards. Other services are home banking, office banking, internet banking, cheque

15“http://www.scribd.com/doc/18028736/Online-Banking-System” (accessed 30 March 2011). 16The National Information and Communication Technologies Policy 2003, 1. “Information and

Communications Technologies (ICT) advances since the end of the 20th Century have led to multiple

convergences of content, computing, telecommunications and broadcasting. They have brought about changes in

other areas, particularly in knowledge management and human resources development. Increasing capacity of

ICT has further been empowered by the growth of a global network of computer networks known as the Internet.

It has impacted the way business is conducted, facilitated learning and knowledge sharing, generated global

information flows, empowered citizens and communities in ways that have redefined governance, and have

created significant wealth and economic growth resulting in a global information society.” 17 Former Secretary-General of the United Nations served from 1 January 1997 to 31 December 2006. 18 As quoted by Mollel & Lukumay, supra, note 1, 1. 19 “http://www.bis.org/publ/bcbs98.htm” (accessed 31 March 2011). 20Commission of such transaction is shared between Master Card Company and CRDB as according to John

Almasy, a branch manager of the CRDB Iringa branch in a seminar at Ruaha University College on 15 March

2011. 21“http://www.bot-tz.org” (accessed 2 April 2011).

http://www.scribd.com/doc/18028736/Online-Banking-System

http://www.bis.org/publ/bcbs98.htm


http://www.centralbank.go.ke.publicnotices/valuecapping.aspx%5C

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truncation and the use of ATMs.22 Additionally, electronic banking facilitates inter-bank

monetary transfer within and outside the country.23 In 1999, Tanzania Bankers’ Clearing

House issued paper instrument standards specifying requirements for computer printout of

cheques and transactions done at point of sale.24

In 2000, BoT issued Guidelines on Introduction and Operation of Auditable Card

Based Electronic Money Schemes in Tanzania for the purpose of addressing the key strategy

and operational issues essential for any institution that dealing with e-money products.25 The

Bank of Tanzania Electronic Clearing House (BOTECH) became operational in 2002.

BOTECH facilitates normal inter-bank electronic debit clearing and it has connectivity with

clearing houses in major cities in Tanzania namely; Dar es Salaam, Arusha, Mwanza, Mbeya

and Zanzibar.26 Membership is limited to licensed commercial banks only and their main role

is to facilitate the clearance of paper-based inter-bank instruments, principally cheques.27

Currently, interbank clearing is processed electronically at the Dar es Salaam

Electronic Clearing House (DECH) which accounts for 80% in volume of the country’s

interbank clearing while the remaining 20% is processed manually.28 In 2003, the National

Information and Communications Technologies Policy was adopted which carries the vision

and mission towards facilitation of the application of the ICT in improving the living

standards of Tanzanians as it states;

“The National ICT Policy is aligned to the following vision statement:

Tanzania to become a hub of ICT Infrastructure and ICT solutions that

enhance sustainable socio-economic development and accelerated poverty

reduction both nationally and globally. The overall mission of this Policy is:

To enhance nation-wide economic growth and social progress by

encouraging beneficial ICT activities in all sectors through providing a

conducive framework for investments in capacity building and in promoting

22 “http://www.bot-tz.org” (accessed 4 April 2011). 23Bank of Tanzania, “Payment System in the Southern African Development Community – Tanzania Chapter”

available at “http://www.bot-tz.org” (accessed on 20/05/2011); Guidelines on Introduction and Operation of

Auditable Card Based Electronic Money Schemes in Tanzania 2000, Section One. [hereafter “the Guidelines”]. 24Tanzania Bankers’ Clearing House, “Paper Instrument Standards: Directorate of National Payment System”, 4.

Available at “http://www.bot-tz.org” (accessed 24 May 2011). 25“http://www.bot-tz.org” (accessed 24 May 2011). Thus, the guidelines save as a safeguard measure to

consumer interests and having standardization for future system integration. 26“http://www.bot-tz.org” (accessed 25 May 2011). 27“http://www.bot-tz.org” (accessed 25 May 2011). 28 “http://www.bot-tz.org” (accessed 20 December 2014).








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multi-layered co-operation and knowledge sharing locally as well as

globally.”

The banking sector makes heavy use of ICT to provide improved customer service

with some banks using Very Small Aperture Terminals (VSATs) or public leased lines to

interconnect their branches and cash dispensing ATMs.29 In the same year (2003) Tanzania

Interbank Settlement System (TISS) was implemented and in 2004 became operational.30

TISS is an online system which facilitates Real Time and Gross Settlement (RTGS) of

payment instructions between banks in Tanzania.31 In order for banks in Tanzania to engage

in offering electronic services to their customers or engage in interbank electronic clearing,

they should be both TISS and SWIFT members.32 Tanzania has 29 total number of

commercial banks out of which 20 banks are members of TISS and SWIFT.33

Thus, Tanzania has five electronic houses in total whereby the Bank of Tanzania

is a host of all five clearing houses.34 Therefore, Tanzania intensively uses electronic banking

as it carried out by banks and communication entities such as Vodacom with MPESA, Zantel

with ZPESA, Airtel with AIRTELMONEY, and Tigo with TIGOPESA. It is recognised as

one of the payment methods by the Bank of Tanzania (BoT)35 and Tanzania Communications

Regulatory Authority (TCRA).36 In any type of business, the law assures protection of parties

involved in business. As already discussed, electronic banking facilitates banking business in

29The National Information and Communications Technologies Policy 2003, 5. Available at

“http://www.tanzania.go.tz/pdf/ictpolicy.pdf” (accessed 20 September 2011). 30 “http://www.bot-tz.org” (accessed 4 April 2011). 31 TISS functionalities include online real time account management and interbank high value or time critical

funds transfers. The system has two separate options; gross settlement and liquidity optimization settlement

facility (LOSF) as provided in TISS brochure available at “http://www.bot-tz.org” (accessed 20 December

2014). 32TISS Rules and Regulations, 2003, Section 5(1) [hereafter “TISS Rules and Regulations”]. TISS operates by

using three main components i.e. SWIFT network, the participant (member) webstation and the TISS central

system. 33Also known as Tanzania SWIFT user group. These includes CRDB, NMB, NBC, TPB, Barclays, Citi bank,

Standard chartered etc. (“http://www.bot-tz.org” accessed 25 May 2011). 34These includes BOTECH, DECH, TBCH, MBECH and TISS which is overall. (“http://www.bot-tz.org”

accessed 25 May 2011). The clearing houses hold two clearing sessions daily one for TZS instruments and

another for USD cheques. Exchange of cheques takes place from 10:00am – 4:30pm on each working day.

Money clearing is done once a day for TZS 9:30am – 10:00am and for USD 11:30am. 35 The BoT Act Section 6; “http://www.bot-tz.org” (accessed 20 December 2014). 36TCRA is responsible in communication network in electronic banking e.g. mobile banking payments are

regulated by both BoT and TCRA. The former in aspect of observing financial transactions and the latter in

monitoring the mobile phone operations. The two authorities have signed a memorandum of understanding to

regulate mobile money transfer services. (“The Citizen” 23 February 2011).

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particular and e-commerce in general. Given the importance of banking and the risky

circumstances it is involved in, the law should adequately regulate electronic banking to

protect banking business which may be affected with electronic banking if it is not so

adequately regulated.

2. Legal Framework of Electronic Banking in Tanzania

The legal framework does not only refer to the law but also to proper legal

institutions and competent legal personnel capable to determine matters brought before them.

The legal framework to accommodate electronic banking in Tanzania comprises; the Bank of

Tanzania Act, 2006 and the Banking and Financial Institutions Act, 2006. The Acts continue

to recognise TISS and MBECH Rules and Regulations made under the Bank of Tanzania Act,

1995. The Rules and Regulations set to govern transactions in inter-bank settlement system

and at clearing houses. The Rules and Regulations37 provide for inter-bank electronic

transactions between banks within and outside Tanzania as TISS members are also required to

be SWIFT members; other laws of the land are also applicable in electronic banking

transactions e.g. evidence law, contract law, criminal laws etc; The High Court (T)

Commercial Division established under Rule 5A of the High Court Registries (1984) Rules as

amended by GN. 141 of 1999 which was later repealed and replaced by GN. 96 of 2005

adjudicates Commercial cases.38

The central objective for establishing the Commercial Division was to put in place

a specialized court which would gratify the business community by determining Commercial

disputes proficiently and effectively.39 The Commercial Court can determine civil cases of

37 These includes; Bank of Tanzania Electronic Clearing House Rules and Regulations, 2002; Dar es Salaam

Electronic Clearing House Rules and Regulations, 2007; Mbeya Electronic Clearing House Rules and

Regulations, 2008; Tanzania Bankers’ Electronic Clearing House Rules and Regulation, 2002; Tanzania

Interbank Settlement System Rules and Regulations, 2003. 38 The High Court of Tanzania Commercial Division is one of the three Divisions of the High Court of Tanzania.

It started its operation on 15 September, 1999 following a decade of legal reform process. It is now eleven (12)

years old. Electronic banking cases may also fall under the jurisdiction of this court. 39 The Judiciary of Tanzania, the High Court (T) Commercial Division Report 2010. The establishment of the

commercial division therefore aimed at strengthening the private sector by encouraging both local and foreign

investors.39 The Commercial court serve as an insurance tool that can effectively, efficiently and speedily resolve

commercial disputes that were to emerge in the stir of expanded business and commercial activities.39

Generally, the call for the Commercial Court was a result of the developments in the management of the

economy where privatization became an order of the day.

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commercial nature under its both original and appellate jurisdiction.40 In a number of decided

cases judges endeavour to cover a wide interpretation of the document to include electronic

document such as; In Trust Bank’s Case, the Court extended the definition of banker’s book

to include computer printouts (this case was decided before the amendment of the Evidence

Act, it has been argued that this case encouraged the amendment of the Evidence Act in

2007). In the case of Tanzania Bena Co. Ltd v. Bentash Holdings Ltd41 the Court

acknowledged communication conducted via email to be tendered as evidence. In the case

National Bank of Commerce v. Milo Construction Co. Ltd and Two Others42 the Court

admitted in evidence statements stored in computer program. However, the interpretation of

the judiciary alone cannot to be said to be sufficient in facilitating electronic banking

transactions. A comprehensive piece of legislation is still needed to fully support and protect

electronic banking undertakings.

It is undisputed fact that, the current legal framework has tried to accommodate

electronic banking in Tanzania, and so far been marked as a landmark process towards

effective legal framework which fits in the current technological circumstances in Tanzania. It

should be noted therefore, that the current legal framework manages to partially accommodate

electronic banking transactions but it can only be likened to ‘a one drop of water in the

ocean’. There is still a lot to be done so as the legal framework in Tanzania can fully and

effectively accommodate electronic banking as well as electronic transactions in general.43

40 The High Court Registries Amendment Rules 2005, Rule 5A (2) which states: “The Commercial Division of

the High Court shall have both original and appellate jurisdiction over cases of Commercial significance.” The

Commercial Division did not have appellate jurisdiction from its inception as provided under Rule 2 of the High

Court Registries Amendment Rules 1994. It was not until 2005 when the court was clothed with appellate

jurisdiction, which allows it to hear appeals from subordinate courts i.e. the Resident Magistrates’ Court and

District Magistrates’ courts. 41 Tanzania Bena Co. Ltd v. Bentash Holdings Ltd, Commercial Case No. 71 0f 2002 (unreported). 42 National Bank of Commerce v. Milo Construction Co. Ltd and Two Others, Commercial Case No. 293 of

2002 (Unreported). 43J. Ubena, Why Tanzania Needs Electronic Communication Legislation? Law Keeping up with Technology, 2

Law Reformer Journal 1, (2009), 17. “Information Communication Technology (ICT) in the name of electronic

communication as an industry in stricto sensu, is unregulated in Tanzania. The country has therefore been

running the risk of being a cyber criminals’ haven. It is true for instance that, when one decides to spread

computer viruses maliciously, he cannot be prosecuted in Tanzania, the reason being that we do not have a

legislation in place to govern or address that problem. This is no longer a problem in some countries such as the

United Kingdom which have already adopted the Convention on Cyber Crimes and have enacted the Computer

Misuse Act, 1990. Other countries in the whole of European Union, member states have electronic

communication legislation.”

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3. Practical Legal Issues on Electronic Banking in Tanzania

This part explores practical legal issues posed to electronic banking given that for

there is no specific law catering for the same and the existing banking laws are superficially

cover aspects of electronic banking. Emphasis is drawn on the following insurmountable legal

issues; legality of electronic cheques, legality of electronic banking agreements, legal rights

and obligations of parties in electronic banking transactions, admissibility of electronic

records and authentication of electronic signatures and prosecution of cyber crimes. The

exploration of these issues are presented as hereunder;

3.1 Non-Legal Recognition of the Electronic Cheques

Methods of payment currently used in Tanzania, are cash, paper-money and

electronc money. The third method comprised with it electronic cheques. The first two

method are fully recognized by Tanzanian banking laws. For example; payment by cash is

provided by the BoT Act and it is required that payment by cash be made in the legal tender.44

The legal tender described is bank notes and coins at their face value.45 In case of bank notes,

a shilling, or any multiple of a shilling, suffices for payment of any amount.46 In the case of

coins having a face value of fifty cents or below, payment of any amount not exceeding five

hundred shillings is effected.47 Paper-money can be paid through a bill of exchange and

promissory note. A bill of exchange defined as; “[A]n unconditional order in writing, made by

drawer instructing drawee to pay to the holder of an instrument against drawer’s account.”48

A cheque is a bill of exchange which is used in payment as paper-money.49 The

definition of bill of exchange seems to exclude electronic cheques as one of the payment

instrument. In common law principles, the requirement of a bill of exchange to be in writing

and be signed, excludes data message or electronic materials. An instrument which does not

comply with the conditions stipulated in Section 3 (1) is not a bill of exchange.50 However,

an electronic cheque is carried out as a payment instrument. The side effect of electronic

44 The BoT Act, Section 28. 45 The BoT Act, Section 28 (1) (a) and (b). 46 The BoT Act, Section 28 (1) (b) (i). 47 The BoT Act, Section 28 (1) (b) (ii). 48 The Bills of Exchange Act [Cap 215 R.E 2002], Section 3 (1). [hereafter “the BEA”]. 49 The BEA, Section 73 (1). “A cheque is a bill of exchange drawn on a banker payable on demand.” 50 The BEA, Section 3 (2).

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cheque not having legal recognition is that there is uncertainty as to when it can be said that

payment is effected when such payment is intended to be carried out through electronic

cheques. In other jurisdictions such as United States of America, United Kingdom, and

majority of European Union member states, electronic cheque is legally recognized as one of

the instruments of initiating payment through EFT.51

3.2 Problems Associated with Legality of Electronic Banking Contracts

A contract is established when an offer has been accepted and consideration has

been formed. As a consequence thereafter, both offeror and offeree are bound with such an

agreement and the agreement becomes enforceable by the law.52 Normally, in traditional

banking, a contract between a bank and an individual created when an individual makes an

offer to the bank to open an account and the bank accepts such offer. The consideration is the

deposits paid in by the customer. Accordingly, the customer becomes a creditor and the bank

becomes a debtor obligated to repay the creditor at creditor’s convenience.53 An electronic

banking contract refers to a contract done via electronic means between a bank and a

customer for banking purposes. The most common way of concluding an electronic contract

is by exchanging email through websites.54 It should be noted that, electronic banking

contracts are not for trivial matters, rather they are for serious contracts as they involve money

transfer. It could involve credit facilities whereby a person can apply for a loan online and

other procedures to process will follow later after the said contract has been concluded. The

important issue is as to whether electronic banking contracts are enforceable. That is the

51 N. N. N. Nditi, Banking Lecture Material, (unpublished), 55. “in England it became necessary to amend the

law in 1996 to allow cheque truncation. A new section was inserted into the Bills of Exchange Act, 1882. The

amendment was effected through an order named Deregulation (Bills of Exchange) Order 1996. The law as

amended by insertion of Section 74B into the BEA, 1882, now permits the presentation of the cheque by means

of electronic or similar message, which set out the fundamental features of the cheque namely; serial number, the

sorting code of the drawee bank, the number of the account on which the cheque is drawn and its amount.”; See

also, Ubena, supra, note 43, 17. 52 The Law of Contract Act [Cap 345 R.E 2002], Section 2, [hereafter “the LCA”]. 53 The BoT Act and the BFIA, Section 3; Joachimson v. Swiss Bank Corporation [1921] 3 K.B 110; N.N.N.

Nditi, Banking Law Lecture Material” (unpublished), 90. 54 Mollel & Lukmay, supra, note 1, 29. “…the two most common ways of entering into contract on the world

wide web are by exchanging e-mail or by what is known as web-click whereby a shopper visits the website of an

e-merchant and selects the item(s) or orders the service that he or she is after. There are certain preliminary

considerations that apply to both types of contracts. Such considerations include whether a valid contract can be

concluded wholly electronically at all and, if it can, how such a contract can be authenticated and attested to by a

legally valid signature if necessary and what the legally acceptable proof of the contract is?”

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whole concept of legality because in order for a contract to be enforceable it must be legal,

contrary to that, such contract cannot not be enforceable and thus is void ab initio55

The Law of Contract Act56 do not provide for this type of contract. One may

wonder why electronic contract are exceptional. These contracts are just simple contracts and

are not different from the ones concluded manually. The only difference is that they are

concluded electronically. Given the position of the law, an electronic contract cannot be

similar to traditional contract.57 One simple example is that electronic contracts do not adhere

to the rules of communication, acceptance and revocation of proposals as laid down by the

Act. The communication of a proposal is complete when it comes to the knowledge of a

person to whom it is made.58 The communication of an acceptance is complete as against the

proposer, when it is put in a course of transmission to him, so as to be out of the power of the

acceptor,59 as against the acceptor, when it comes to the knowledge of the proposer.60 The

communication of a revocation is complete as against the person who makes it, when it is put

into a course of transmission to a person to whom it is made, so as to be out of the power of a

person who makes it,61 as against the person to whom it is made, when it comes to his

knowledge.62

The fact that, electronic material gets to a receiver at the very same moment after

being sent, there is no room for revocation. In other words when a proposal has been accepted

a promise cannot be revoked. Since the law of contract do not provide for electronic contracts,

that makes electronic banking agreements invalid simply because they do not meet legal

requirements of the law. According to the cited provisions, the law affords parties reasonable

time in formulation of a contract, different between the offeror and the acceptor in

55 The LCA , Section 2, “an agreement not enforceable by law is said to be void”. 56 [Cap R.E 2002]. 57 C. Riefa & J. Hornle, “ The Changing Face of Electronic Consumer Contracts in the Twenty-First Century: Fit

for Purpose?” in L. Edwards & C. Waelde, (Eds), Law and the Internet, Oxford and Portland, Oregon 20093, 93;

Mambi, Supra, note 8, 22. “Normally under English Law or Common Law the formation of a contract requires

four main elements namely offer, acceptance, consideration and intention to create legal relations. These

elements might be affected by the development and use of e-commerce. Common Law countries like Tanzania

have historically relied heavily on the transfer of written, signed and authenticated documents. Some statutory

rules require that some contracts be made or evidenced in particular way namely by deed, under seal and writing.

They also have to be signed manually before a witness and be evidenced with original documents. 58 The LCA, Section 4 (1). 59 The LCA, Section 4 (2) (a). 60 The LCA, Section 4 (2) (b). 61 The LCA, Section 4 (3) (a). 62 The LCA, Section 4 (3) (b).

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communication, acceptance and revocation of the proposal. The rationale of this is to give

parties enough time to decide on and submit themselves to a legal relation created as against

one another63 unfortunately electronic contract as the law stands, do not afford the parties

such an opportunity.

The argument put forward under this aspect is that, Tanzanian law of contract is

inadequately providing for electronic contracts because it is impossible for electronic

contracts to meet the requirement of the law currently in force from its formation stage.64

Meaning, it does not afford parties opportunity to reconsider their intention of formulating a

contract before final conclusion of such contract. Additionally, it is based on traditional way

of forming a contract such as by writing, orally or by conduct and under seal.65 The fact that,

common law tradition regard writing as tangible document that excludes electronic contract

simply because the latter is in intangible form.66

Thus, electronic banking agreements need to comply with law in order to be valid

and enforceable. This can only be possible if the law in force affords such an opportunity.

Although UNCITRAL Model Law provides that, a contract shall not be denied validity or

enforceability on the sole ground that it is in a form of electronic communication,67 but an

agreement which is contrary to the law, is prima facie not valid and thus cannot be

enforceable. It is not enough only considering technological developments and forget about

63 Mambi, supra, note 8, 23. “It is cardinal principle of contract laws under common law that the revocation of

an offer or acceptance is said to be effective only if it is communicated. In this way, the communication of

revocation is complete at different times for the person who makes it, and also for the person to whom it is made.

In other words, for the person who makes the revocation, the communication of revocation is complete when it is

put into course of transmission to the to whom it is made. And for the person to whom revocation is made, the

communication of revocation is complete when it comes to his knowledge” 64 Mambi, supra, note 8, 29. “the other criterion for validity of an online contract is the ability to reject. Assent

now- terms later contracts were not enforceable because they eliminate the user’s necessary ability to reject the

agreement.” 65 Mambi, supra, note 8, 26. “there are considerable number of traditional staruroty rules in countries that apply

common law principles like Tanzania about particular types of contracts requiring them to be made or evidenced

in particular way. These requirements which are contrary to electronic contracts can be categorized as follows:

the contract must be under seal. This is a legal requirement for a valid contract; the contract must be in writing

and the contract must be evidenced in writing and signed before a witness. The definition of writing and

signature under the current laws does not involve data message. In addition to that it is impossible for both

parties entering into contract to use other parties to witness their transactions under cyberspace. ” 66 Mollel & Lukumay, supra, note 1, 30. “under pre-internet era traditional law, such contract would not

normally satisfy the requirement of writing because that would require visible representation in tangible form

whereas computer data is strictly speaking intangible.” 67 United Nations Convention on the Use of Electronic Communications in International Contracts, 2005, Article

8 (1).

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the law which can go hand to hand with such development.68 The fact that Tanzanian contract

law inadequately provide for electronic contract, it creates legal challenge to the electronic

banking because the side effect of this is that, banks cannot conclude electronic contract even

if does, the said contract is void. Accordingly, one cannot be more wrong to assert that,

generally, Tanzania contract law neither facilitate nor protecting electronic banking.

As one of the payment system, electronic banking should be facilitated and gain

strength from the law for its very purpose of conducting banking business. And due to its

nature, it is wise to strengthen the same because this will even help on acquiring new

customers without the customers having physical contact with the bank of his or her choice. It

is important to note that banks are very crucial in economic activities of any country.69 Thus

by having strong legal framework in place providing for electronic banking contracts, will act

as an incentive to the pontential customers and banks. On a more positive note banks would

have a wide involvement in other types of banking business electronically as well rather than

concentrating in EFT only.

3.3 Uncertainty in Legal Rights and Obligations of the Parties in Electronic Banking

Transactions

In traditional banking, parties to a contract, are the banker and the customer. In

electronic banking, normally a contractual relationship involves more parties than usual. For

example a single electronic fund transfer at point of sale (EFTPOS) transaction involves five

contractual relationships. These are; between a bank customer and a seller, between a bank

and a customer, between a seller and a seller’s acquirer, between a seller’s acquirer and a

bank, and between a seller’s acquirer and a seller’s bank.70 All of these contractual

relationships make electronic banking more complex and thus requires harmonization. In

traditional banking, parties to a banking contract were debtor and creditor.71 Rights of one

68J. Ubena, Why Tanzania Needs Electronic Communication Legislation? Law Keeping up with Technology, 2

Law Reformer Journal 1, (2009), 22. “The pace of ICT development turns legislation obsolete. The law ought

not only to be flexible but also be proactive to see to it that it neither leaves people unprotected against new

technologies nor hamper the development of technologies themselves.” 69 MBECH Rules and Regulations, Section 22 (1) “A payment system covers the complete process from

initiating a payment transaction, processing of the transaction through to settlement finality. The NPS. 70Chartered Institute of Bankers, Law Relating to Banking Services: Bankers Workbook Series, Sheffield Hallam

University, London 1994, 150. 71 Foley v. Hill (1818) 2 H.L 28.

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party are the obligations of another party and vice versa. The following are some of the rights

and obligations of parties in traditional banking contract; a bank has an obligation to repay a

customer on demand according to the customer’s instructions,72 the customer has a right to

withdraw cash at his or her convenience. Both a bank and a customer have a duty to disclose

forgeries.73 If the customer knows about the forgery and choose not to disclose and the bank

pay against such forgery, the bank will be released from the liability and vice versa.74

The same position was given in the case of Tai Hing Cotton Mill Ltd v. Liu Chong

Hing Bank Ltd and Others [1985] 2 All E.R 947, when the court observed that, in the absence

of an express agreement to a contrary, a duty of care owed by a customer to his bank in the

operation of his account, is limited to a duty to refrain from drawing a cheque in such a

manner as to facilitate fraud or forgery. Also a customer has an obligation to inform the bank

of any unauthorized cheque purportedly drawn on the account as soon as he, the customer,

becomes aware of it. And in the case of Silayo v. CRDB (1996) Ltd [2002] 1 EA 288, the

court stated that, the bank has the duty to detect fraud when a bogus cheque is presented for

payment. Customer has a duty when drawing and handling cheque to exercise duty of care

and diligence,75 the bank has a right not to be deceived by the customer.

The bank has the duty of secrecy over customer’s account;76 the customer has the

right to privacy of his or her account. In the case of Tournier v. National Provincial and

72 The common Section 3 of both The BoT Act, and The Banking and Financial Institutions Act, Act No. 5 of

2006 [hereinafter “the BFIA”]; Nditi, supra, note 31, 89; Joachmson v. Swiss Bank Corporation [1921] ALL E.R

92. 73 Greenwood v. Martins Bank Ltd [1932] All E.R 318. 74 Greenwood v. Martins Bank Ltd [1932] All ER 318. “the plaintiff, who kept his account with the defendant

bank, entrusted his wife the custody of the cheque book and pass book. In October 1929, when he asked her for a

cheque to draw pounds 20 she confessed to him that she had drawn out all the money in the account saying that

it was needed to help her sister in legal proceedings. Out of consideration for his wife the plaintiff refrained from

advising the bank of the forgeries for eight months. However, in June 1930, when she told him that she wanted a

further pounds 60 for the legal proceedings, he made an inquiries and, discovering that there was no such

litigation, he told her he was going to inform the bank, whereupon she shot herself. The plaintiff brought an

action against the bank for pound 4106s., the amount paid against forged signatures. The plaintiff was stopped

from denying the authenticity of his wife’s signatures as his because the plaintiff was under duty to inform the

bank about his wife withdrawals as soon as he was aware of them so as to put on guard…had the plaintiff

informed the bank as required, the bank would have been held liable for paying against forged authorizations” as

quoted in N. N. N. Nditi, Banking Law Materials, (unpublished), 84. 75 London Joint Stock Bank v. McMillan & Arthur [1918] A.C 777. 76 The BFIA, Section 48. “Every bank or financial institution shall observe, except as otherwise required by law,

the practices and usages customary among bankers, and in particular, shall not divulge any information relating

to its customers or their affairs except in circumstances in which, in accordance with the law or practices and

usages customary among bankers, it is necessary or appropriate for the bank or financial institution to divulge

such information.”

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Union Bank of England Ltd, the bank was worried about an overdraft of its customer. As a

result it disclosed to the customer’s employer that his account was overdrawn and that the

customer was thought to be gambling. The court held that, the disclosure of information by

the bank to the customer’s employer was breach of the bank’s contractual duty of secrecy

owed to the customer.77

In electronic banking, there are high possibilities of fraud and forgeries. In cheque

truncation for example, there is no physical contact between a bank and a customer, a

computer hacker may forge the cheque and send to a paying bank. Under this situation, it is

over and out of the bank’s and customer’s hand, so who is to take the responsibility? Is it a

bank, customer or a network provider? Again in electronic banking more than one contractual

relationship is involved. This makes difficult to ascertain the rights and duties of each party.

For example, when an ATM fails to dispense cash to the customer due to a power cut, who is

to blame, is it the bank or power provider? Does the right of the customer to receive cash in

his or her demand and the duty of the bank to repay the customer on demand still stand? Due

to the fact that, there is no specific electronic banking laws or banking laws currently in force

to address electronic banking, answering these questions is difficult because the legal rights

and obligations are not well established.

Although guidelines for payment cards emphasize that, parties to electronic

payment cards must enter into legal binding agreement so as to guide the electronic

transactions via ATM, POS, automated call distributor (ACD) and bank computer terminals,

yet the legal rights and obligations of each party are uncertain. The agreement often referred

to as service level agreement (SLA).78 The rights and obligations of each party must be well

defined, disclosed and enforceable.79 According to these guidelines, a bank and a customer

must conclude a legal agreement in the use of an ATM card or payment card that will be used

only in approved POS and ATMs or ACDs and bank terminals. The agreement must be

77 Tourneir v. National Provincial and Union Bank of England Ltd [1923] All E.R 550. See also Intercom

Services Ltd and Others v. Standard Chartered Bank Ltd [2002] 2 EA 391. 78 The Guidelines on Introduction and Operations of Auditable Card Based Electronic Money Schemes in

Tanzania, 2000, [hereinafter “the Guidelines”], Guidelines 10 (2) (xi) and 11 (5) (ii). “legally binding,

enforceable and transparent service level agreements (SLAs) shall be in place and agreed between all relevant

participants to a scheme. Such SLAs will reflect the levels that are commonly accepted on an international

basis.” 79 The Guidelines, Guideline 10 (2) (xi) and 11 (5) (ii).

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guided by the law currently in force. This means, the law of contract will apply in this type of

agreement for electronic banking.

Thus, in case of any breach, parties will sue on the Law of Contract Act80

provided that their agreement was concluded accordingly. This probably answers the

questions posed earlier that, which law can parties can apply in suing one another. But then,

how can anyone sue another if he or she is not sure about the legal rights and obligations he or

she has against such a person.

According to the Guidelines on Introduction and Operations of Auditable Card

Based Electronic Money Schemes in Tanzania, 2000 which is basically for payment cards,

parties themselves has to determine their rights and obligations81 this can only mean the rights

and obligations will vary from one parties to the other save only to those rights and

obligations the guidelines propose that they must be included.82 However, it should be noted

that, the guidelines are mere guiding principles and do not solely confer a legal obligation on

the parties on which terms of such contract should be put in place. Meaning, parties have the

liberty to choose on which rights or obligation they should have. Considering the fact that,

electronic banking is a very crucial aspect for financial intermediary, it would have been

better if rights and obligations of the parties are well certainly established.

Uncertainty in legal rights and obligations of the parties to electronic banking is a

legal challenge to electronic banking undertakings because banks may be in a difficult

situation in abiding with the law. For example, banks must not divulge customer’s

information to the third party as the provision of the law provides;

“Every bank or financial institution shall observe, except as otherwise

required by law, the practices and usages customary among bankers, and in

particular, shall not divulge any information relating to its customers or their

affairs except in circumstances in which, in accordance with the law or

practices and usages customary among bankers, it is necessary or appropriate

for the bank or financial institution to divulge such information.”83

80 [Cap 345 R.E 2002]. 81 The Guidelines, Guideline 11 (5) (ii). 82 Idem. 83 The BFIA, Section 48 (1).

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However, the provision gives an exception as to such disclosure of information.

The phrase “except as otherwise required by law” gives a bank room to depart from the

doctrine of confidentiality. Accordingly, banks normally disclose customers information

empowered by different pieces of legislation such as; the Law of Evidence Act,84 the

Prevention of Terrorism Act,85 the Prevention and Combating of Corruption Act,86 the Mutual

Assistance in Criminal Matters Act, the Proceeds of Crime Act,87 the Drugs and Prevention of

Illicit Traffic in Drugs Act, the Public Leadership Code of Ethics Act, and the Anti-Money

Laundering Act.88 Looking at the aforementioned provisions, banks can do that, when a

customer is involved in criminal issues. This means therefore, when a bank gives information

of their customer’s account through electronic banking transactions is actually violating the

provision of the law as laid down by Section 48 (1) of the Banking and Financial Institutions

Act. For example in EFTPOS when a bank dishonours EFTPOS transaction for non-payment

will have to disclose the reasons for such an act. This violates the law because electronic

banking transactions are not covered under the exception phrase “except as otherwise required

by law, the practices and usages customary among bankers.” Additionaly, the doctrine of

confidentiality or secrecy is violated due to the fact that, electronic message passes through a

84 [Cap 6 R.E 2002], Section 77 “subject to this Act, a copy of any entry in a banker’s book shall in all legal

proceedings be received as prima facie evidence of such entry and of the matters, transactions and accounts

therein recorded.” 85 The Prevention of Terrorism Act, Act No. 21 of 2002, Section 41 (2) and (3). (2) “every financial institution

shall report, every three months, to police officer and any body authorized by law to supervise and regulate its

activities (a) that it is not in possession or control of any property owned or controlled by or on behalf of a

terrorist group; (b) that it is in possession or control of such property, and the particulars relating to the persons,

accounts, and transactions involved and the total value of the property. (3) In addition to the requirement of

subsection (2), every financial institution shall report, to the police officer, every transaction which occurs within

the course of its activities, and in respect of which there are reasonable grounds to suspect that the transaction is

related to the commission of a terrorist act. 86 The Prevention and Combating of Corruption Act, Act No. 11 of 2007, Section 12 (1). “the director general

may by writing authorize any officer to search any person, if it is reasonably suspected that such person is in

possession of property corruptly or illicitly acquired or to search any premises …in or upon which there is

reasonable cause to believe that any property corruptly or illicitly acquired has been placed, deposited or

concealed.” 87

The Proceeds of Crimes Act, [Cap 254 R.E 2002], “Where a financial institution has reasonable grounds for

believing that information about an account held with it may be relevant to an investigation of, or the

prosecution of a person for, an offence, the institution may give the information to a police officer.” 88 The Anti-Money Laundering Act, Act No. 12 of 2006, Section 15 (3). “where an applicant requests a bank,

financial institution or any other reporting person to enter into a continuing business relationship; in the absence

of such a relationship, any transaction, a bank, financial institution or any other reporting person shall take

reasonable measures to establish whether the person is acting on behalf of another person.”

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number of transmission points; more people can have access to it and this contravenes the

provision of the law.89

Furthermore, in electronic banking banks are exposed to another legal challenge

through money laundering laws. For example, the Anti Money Laundering Act90 banks are

required to report any suspicious transaction of their customers from any type of transaction,

be it electronic or traditional transaction.91 Failure to report, banks are subject to punishment

of a fine not exceeding one billion shillings and not less than five hundred million shillings or

an amount equivalent to three times the market value of the property, whichever amount is

greater.92 The Anti Money Laundering Circular No. 8 of 2000 requires banks to restrict the

withdrawal amount from electronic payment card. This is why; in ATM for example a normal

customer cannot exceed TZS 1,000,000/= per day withdrawal for both domestic and

international transaction while a corporate customer cannot exceed TZS 3,000,000/=.93 This

is done in order to prevent money laundering through electronic banking transactions.

This is a legal challenge for banks because they must comply with what the law

provides but at the same time they have to satify demands and instructions of their customers.

It should be noted that, customers differ in terms of financial capabilities. Probably it easier

for a normal person to use TZS 1,000,000/= or 3,000,000/= per day rather than a successful

businessman who is engaged in widespread use of money. It is a legal challenge because if

banks dare to act to the contrary, they will absolutely have problem with the authorities.

Additionally, due to the nature of electronic banking which engages a multiplicity of parties

compared to traditional banking, it would be reasonable if the doctrine of privity to contract

would be considered inapplicable. The doctrine of privity to contract, simply establishes that,

strangers in a contract cannot sue or be sued on such contract. In the case of Tweedle v.

89 The BFIA, Section 48. “Every bank or financial institution shall observe, except as otherwise required by law,

the practices and usages customary among bankers, and in particular, shall not divulge any information relating

to its customers or their affairs except in circumstances in which, in accordance with the law or practices and

usages customary among bankers, it is necessary or appropriate for the bank or financial institution to divulge

such information.” 90 Act No. 12 of 2006; “http://www.bot-tz.org” (accessed 20 December 2014). 91 The Anti Money Laundering Act, Section 3. 92 Ibid, Section 13 (b). 93 Mr. Ngassa Maganga, CRDB bank teller – Iringa branch when respond to the question posed by the author on

8 December 2014. He adds even corporate customers vary. There are those who holds visa cards and those hold

visa card premier. The two cards have similarity on limitation of withdraws but differ in other more privileges.


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Atiknson,94 the court observed that, any person who is not a party to a contract has neither

rights nor obligations arising from the said contract.95 In other words, a third party cannot

enforce a contract. The same position was stressed up in the case of Dunlop Pneumatic Tyre

Co. Ltd v. Selfridge96 where the court demonstrated that, rights and obligations arising from a

contract cannot be shared between the parties to a contract and the strangers.97

In electronic banking, as already seen, more than two parties are involved.

Normally, banks tend to exempt themselves from liabilities. For example; in payment card

transactions, the terms may exempt the bank from liability when the machine fails to dispense

cash to customers. Due to the doctrine of privity to contract, this means that, the customer

cannot complain against the network provider if such failure caused by the network provider.

Because, the one in contract with the network provider is the bank and not the bank customer.

Thus, it is the bank to complain on behalf of the customer. In case of Beswick v. Beswick98 the

court demonstrated that, the general rule in any contract is that, the contract binds parties to

such a contract, however when such a contract is made for the benefits of third party who has

a legitimate interest to enforce it, it can be enforced by such a third party in the name of

contracting party or jointly with him or her.99 Meaning, if a bank customer fails to receive

cash from an ATM due to the network failure, he can actually complain against the network

provider since the bank contracted with the network provider for the benefit of its customers.

However, the law of contract does not support this expanded doctrine (to allow

bank customers as third parties to sue on the contract) even though it allows third parties to

furnish consideration to the the promisee, they cannot sue on the contract.100 Despite the

presence of exceptions to the doctrine such as; in negotiable instruments a holder of a cheque

on any unpleasant event can sue on any immediate parties; and when an agent acting within

the instructions of the principal, customer can complain against such an agent,101 yet,

94 Tweedle v. Atkinson [1861] 123 ER 762. 95 Idem. 96 Dunlop Pneumatic Tyre Co. Ltd v. Selfridge [1915] AC 847 97 Idem. 98 Beswick v. Beswick [1966] 3 All ER 1. 99 Idem. 100 The LCA, Section 2 (1) (d). “when, at the desire of the promisor, the promisee or any other person has done

or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something,

such act or abstinence or promise is called a consideration for the promise.” 101 N.N.N. Nditi, General Principles of Contract Law in East Africa, Dar es Salaam University Press, Dar es

Salaam 20091, 231.

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according to the nature of the electronic banking, if it remain as it is, will depend only on the

interpretation of the courts to determine whether the doctrine can or cannot apply. Again until

the decision is reached, the current position place parties concerned at uncertainty.

3.4 Problems Associated with the Admissibility of Electronic Banking Records and

Authentication of Electronic Signatures in Evidence

Electronic banking deals with electronic records which inevitably carry electronic

signatures. The issue is whether the same can be admissible in the court of law to prove or

disapprove allegations or matters in dispute relating to electronic banking. UNCITRAL is of

the view that electronic records should not be denied legal effect, validity, enforceability, or

admissibility on the sole ground that it is electronic record or data message.102 In the absence

of the law on either specific matter or provisions in various laws, this cannot be possible.

Proving matters in dispute in electronic banking cases is a matter of evidence. Evidence as

defined by the Evidence Act is to;

“[D]enote the means by which an alleged matter of fact, the truth of which if

submitted to investigation, is proved or disproved; and without prejudice to

the preceding generality, includes statements and admissions by accused

persons.”103

The term ‘means’ refers to an accomplishment by which an outcome is brought

about or a method(s) used to present facts in court for the aim of either proving or disproving

an alleged matter.104 “In other words, evidence is any matter of fact, the effect, tendency or

design of which is to produce in the mind a persuasion, affirmative or negative, of the

existence of some other matter of fact.”105 The landmark statute to this area is the Evidence

Act.106 The Act offers two forms of presenting evidence in the court of law. These are oral

evidence and documentary evidence.107 The best rule of evidence requires authenticity of the

102 UNCITRAL Model Law on E-Commerce 1996, Articles 5 and 9 (1) and (2). 103 The Evidence Act, [Cap 6 R.E 2002] hereinafter “TEA”, Section 3 (1). 104 A.S Hornby, Oxford Advanced Learner’s Dictionary of Current English, Oxford University Press, Oxford

19894, 772, as cited by Mollel & Lukumay, supra, note 1, 65. 105 Mollel & Lukumay, supra, note 1, 53-54. 106 [Cap 6 R.E 2002]. 107 TEA, Section 61. “All facts, except the contents of documents, may be proved by oral evidence.”

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evidence itself. In case of oral evidence, it must always be direct.108 Meaning, if it refers to a

fact which could be seen, it must be the evidence of a witness who says he saw it;109 if it

refers to a fact which could be heard, it must be the evidence of a witness who says he heard

it;110 if it refers to a fact which could be perceived by any other sense, or in any other manner,

it must be the evidence of a witness who says he perceived it by that sense or in that

manner;111 if it refers to an opinion or to the grounds on which that opinion is held, it must be

the evidence of the person who holds that opinion or, as the case may be, who holds it on

those grounds.112

In case of documentary evidence,113 the contents must be proved by primary or

secondary evidence.114 Primary evidence means the document itself produced for the

inspection of the court. The document means any writing, handwriting, typewriting and

printing, Photostat, photograph and every recording upon any tangible thing that recording is

reasonably permanent and readable by sight.115 Secondary evidence is certified copies made

from the original.116 From these definitions, neither oral nor documentary evidence feature

electronic record as evidence. However, as already submitted somewhere in this work, that

the Evidence Act allows admissibility of electronic record in evidence before the court of

law,117 and expanded the definition of banker’s book to include data message kept on an

information system such as computers and storage devices, magnetic tape, micro-film, video

or computer display screen or any other form of mechanical or electronic data retrieval

108 TEA Section 62 (1). “Oral evidence must, in all cases whatever, be direct.” 109 TEA, Section 62 (1) (a). 110 TEA, Section 62 (1) (b). 111 TEA, Section 62 (1) (c). 112 TEA, Section 62 (1) (d). 113 Documentary evidence means all documents produced as evidence before the court. (Section 3 of the

Evidence Act [Cap 6 R.E 2002]) 114 TEA, Section 63. 115 TEA, Section 3. 116 TEA, Section 65. “Secondary evidence includes – (a) certified copies in accordance with the provisions of

this Act; (b) copies made from the original by mechanical process which in themselves ensure the accuracy of

the copy and copies compared with such copies; (c) copies made from or compared with the original; (d)

counterparts of documents as against the parties who did not execute them; and (e) oral accounts of contents of a

document given by some person who has himself seen it.” 117 TEA, Section 40A. “In any criminal proceedings – (a) an information retrieved from computer system,

networks or servers; or (b) the records obtained through surveillance of means of preservation of information

including facsimile machines, electronic transmission and communication facilities; (c) the audio or video

recording of acts or behaviors or conversation of persons charged; shall be admissible in evidence.”

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mechanism.118 Such a type of banker’s book is admissible as a document and as primary

evidence for the inspection of the court.119 Provided that, proof may be given by a partner or

officer of the bank and may be given orally or by an affidavit sworn before any commissioner

for oaths or a person authorised to take affidavits.120 Even so, admissibility of electronic

records in electronic banking cases is still challengeable.

Firstly; the admissibility referred to, only deals with criminal proceedings leaving

out civil proceedings of which most of them are commercial cases121 in which banks are

involved, as the Act reads;

“In any criminal proceedings information retrieved from computer systems,

networks or servers; or the records obtained through surveillance of means

of preservation of information including facsimile machines, electronic

transmission and communication facilities; and the audio or video recording

of acts or behaviours or conversation of persons charged shall be admissible

in evidence.”122

Secondly; the nature of electronic records is intangible123 contrary to the best rule

of evidence which requires a document to be tangible.124 As in the case of Shirin Rajabali

118 TEA, Section 78A (1). “A print out of any entry in the books of a bank on micro-film, computer, information

system, magnetic tape or any other form of mechanical or electronic data retrieval mechanism obtained by a

mechanical or other process which in itself ensures the accuracy of such print out, and when such print out is

supported by a proof stipulated under subsection (2) of section 78 that it was made in the usual and ordinary

course of business, and that the book is in the custody of the bank it shall be received in evidence under this

Act.” 119 TEA, Section 78A (2). “Any entry in any banker’s book shall be deemed to be primary evidence of such entry

and any such banker’s book shall be deemed to be a “document” for the purposes of subsection (1) of section

64.” 120 TEA, Section 78 (2). However, the method of proving electronic record that are; electronic may be proved

orally or by an affidavit cannot not be reliable because an electronic data can be easily changed without leaving a

trace. The same method as established in Section 78 (2) is also used in proving paper based document. Since the

two documents are different to each other cannot be similarly proved. Thus, electronic record requires scientific

method to be proved for the satisfaction of the court. (E. T. Laryea, Paperless Trade: Opportunities, Challenges

and Solutions, Kluwer Law International, The Hague 2002, 28). 121 J. R. Kahyoza, “The Judiciary High Court of Tanzania Commercial Division” 122 TEA, Section 78 (2). Mambi, supra, note 63, 186. “The Act has not cured the problem of legal certainty and

admissibility of electronic evidence. This law seems to be mainly based on electronic evidence…under criminal

proceedings. It might be difficult to apply such evidence where the only available evidence to be applied in cases

related to civil and other cases or proceedings is e-evidence…The question of proof of the integrity of the

electronic records or e-evidence has not been considered.” 123 Mollel & Lukumay, supra, note 1, 77. 124 TEA, Section 3; S. M. Giordano, Electronic Evidence and the Law, 6 Information System Frontiers 2, (2004).

“In contemporary world documents are created in electronic form. The development creates legal challenge since

rules of evidence concentrates much on tangible form of evidence. Digital form differs from paper form of

evidence and thus the former demands special treatment on how it can be authenticated, ascertained and

admissible.”

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Jessa v. Alipio Zorilla the court demonstrated that, document must be proved by primary

evidence by producing the document itself for the inspection of the court and secondary

evidence is admitted in the court where the original cannot be found.125

Thirdly; the Act does not provide for compatible procedures in which the

electronic evidence may be admissible. For example, printed document which bears an

electronic signature, how can it be admissible? As already discussed, for evidence to be

admissible it must be authentic, shows clarity, truth and genuinely. Signature on the document

plays these roles.126 A signature is defined to be the writing, or otherwise affixing, a person’s

name, or a mark to represent his name, by himself or by his authority with an intention of

authenticating a document as being of, or as binding on, the person whose name or mark is so

written or affixed.127 Thus, a signature meant to identify a signatory, intention to sign and an

intention to be bound by the content of such document.128

The assertion that, electronic documents cannot be reliable simply because they

can easily be manipulated and due to their nature, can easily be open to fraudulent actions

thus they cannot be accepted without a challenge is false. The truth is that legal community

easily accepts and trust paper-based documents without any challenge compared to electronic

documents because paper-based documents are readily acceptable and trusted. But even

paper-based documents can be easily manipulated and thus one can tender false evidence.129

The argument may have its basis but even so paper-based documents and electronic

documents cannot be given equal ascertainment. Because, there is a huge difference between

the two, it is just fair that electronic documents receive more challenges than paper-based

documents because even if ascertaining the truthfulness of paper-based documents may be

difficult, the difficulty cannot be similar to ascertaining truthfulness of electronic documents.

125 Shirin Rajabali Jessa v. Alipio Zorilla [1973] LRT 84. 126 Mollel & Lukumay, supra, note 1, 61- 62; R v. Moore, Exparte Myers [1884] 10 VLR 322; E. T Laryea,

Paperless Trade: Opportunities, Challenges and Solutions, Kluwer Law International, The Hague 2002, 28.

“proof in evidence has three meanings which are: due execution of a document shows that it was written and

signed by the person purported to have been written and signed; documents tendered is the original or where a

copy is admissible, a correct copy of the original; the extent to which the contents of the documents capable to

establish matters stated therein under the rules of evidence.” 127 Stroud’s Judicial Dictionary as quoted in Mollel & Lukumay, supra, note 1, 61. 128 Mollel & Lukumay, supra, note 1, 83. 129 E. T. Laryea, Paperless Trade: Opportunities, Challenges and Solutions, Kluwer Law International, The

Hague 2002, 28.

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Therefore, it is reasonable to argue that evidence law must establish clear procedure that will

help in proving electronic documents beyond reasonable doubt.

In order for a document to be admissible as evidence against any party in a suit,

such a document must belong to such person and only such person’s signature can tell that.

As a general rule, once a person signs a certain document, the signatory cannot deny liability.

In electronic documents or record, electronic signature is the main method of authenticating

such a document or record.130 Electronic signature is defined as an electronic sound, symbol

or process, attached to or logically associated to electronic document with an intention of

authenticating such a document.131 It could be a name written at the end of an email message

by the sender, a scanned signature that attached to the document, PIN and a mark.132 The

Tanzania landmark case on admissibility of electronic records in evidence is the case of Trust

Bank Tanzania Ltd v. Le-Marsh Enterprises Ltd and Others133 where the court admitted

electronic records in evidence on the basis that, the law should keep pace with technological

development in banking fraternity. Admitting the same, His Lordship Judge Nsekela, J

submitted that;

“Tanzania is not an island itself. The country must move fast to integrate

itself with the global banking community in terms of technological changes

and the manner in which banking business is being conducted. The courts

have to take due cognizance of the technological revolution that has engulfed

the world. Generally speaking as of now, record keeping in our banks is to a

large extent “old fashioned” but changes are taking place. The law can ill

afford to shut its eyes to what is happening around the world in the banking

fraternity. It is in this spirit that I am prepared to extend the definition of

banker’s book to include evidence emanating from computers subject of

course to the same safeguards applicable to other bankers books under

Section 78 and 79 of the Evidence Act. Under the circumstances I decline

the invitation...that evidence produced by computers should not be

considered as bankers’ book. As I have stated above, in as much as I

130 Mollel & Lukumay, Supra, note 1, 80. 131 Idem. 132 Ibid, 81; J. X. Dempsey, Creating the Legal Framework for Information and Communications Technology

Development: The Example of E-Signature Legislation in Emerging Market Economies, 1 Information

Technologies and International Development 2, (2003). “laws in e-signatures and e-records are very important in

creating legal framework for e-commerce in developing and transitional countries.”; A. M. Nadal & J. L. F.

Gomila, Critical Comments on the European Directive on a Common Framework for Electronic Signatures and

Certification Service Providers, FC ’00 Proceeding of the 4th International Conference on Financial

Cryptography, 2001. “electronic signatures creates new challenges that demands legal regulations to solve

them.” 133 Commercial Case No. 4 of 2000 (unreported), 3.

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subscribe to the view that the court should not be ignorant of modern

business methods and shut its eyes to the mysteries of the computer, it

would, however, have been much better if the position were clarified beyond

all doubt by legislation rather than by judicial intervention.”134

Even though the case admitted electronic record as evidence in civil cases, it did

not lay down procedures on how electronic records and electronic signatures can be approved

or authenticated. Proving an electronic document is still a challenge due to the difficulty of

how to authenticate electronic signature. The method of authenticating signature must be

reliable and appropriate to serve the purpose for which the electronic record was generated,

stored or communicated.135 For example where there is a scanned signature of a certain

company director kept purposely to be inserted at the end of processed document, any

employee gain access to it, may insert to a document and be able to transact with the bank as

if authorised by such a director. The UNCITRAL proposes ‘functional equivalent approach’

which is based on analysing the purpose and functions of the traditional paper-based

requirements. The aim is to determine how those purposes or functions could be fulfilled

through electronic records, and if such electronic records meet the requirements, be

admissible.136

Purpose and functions served by the paper based documents includes; to provide

that a document would be legible by all, to provide that a document would remain unaltered

over time, to allow for the reproduction of a document to enable each party to hold a copy of

the same data, to allow for the authentication of data by means of a signature, and to provide

that a document would be in form of being accepted to the public authorities and courts.

However, more importantly is that legal requirements should be met by electronic records.

Currently, as the law stands, electronic records and signatures do not meet the requirements of

the law. This position poses legal challenges to electronic banking transactions and in case of

inconveniences, parties may fail to obtain legal remedies.

In order to avoid any inconveniences which may cause any party in legal

proceedings fail to obtain legal remedy, other jurisdictions have tried to do away with some of

the problems in admissibility of electronic evidence and authentication of electronic

134 Idem. 135 UNCITRAL Model Law on E-Commerce, 1996, Article 7 (1) (b). 136 UNCITRAL, “Guide to Enactment of the UNCITRAL Model Law on Electronic Commerce”, 1996, 20.

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signatures. For example: Ghanaian Evidence Decree of 1975 defines the word “writing” to

include handwriting, typewriting, printing, Photostatting, photographing, or electronic

recording;137 Supreme Court of the United States of America Rules on Electronic Evidence

provides that, whenever a rule of evidence refers to the term writing, document, record,

instrument, memorandum, or any other form of writing, such term shall be deemed to include

an electronic document;138

Indian Information Technology Act provides that where any law provides that

information or any other matter shall be in writing or in the typewritten or printed form, then,

notwithstanding anything contained is such law, such requirement shall be deemed to have

satisfied if such information or matter is rendered or made available in an electronic form and

accessible so as to be usable for a subsequent reference.139 Accordingly, the Indian Evidence

Act was amended and expanded the definition of the term “evidence” to mean all documents

including electronic records produced for the inspection of the court.140

All of these jurisdictions tend to include electronic records to the best rule of

evidence, meaning electronic documents enjoy same status as paper-based documents. This is

a waiver from the mandatory requirement of the law that document admissible in evidence

should be tangible. However, other problems such as proof of such electronic documents are

still challenge as many jurisdictions opt for functional equivalent approach.

3.5 Problems Associated with the Prosecution of Cyber Crimes

The Tanzanian criminal laws such as the Criminal Procedure Act, the Penal

Code, the Anti-Money Laundering Act, the Extradition Act, the Terrorism Act, and the

Proceeds of Crime Act, etc. makes no reference to cyber crimes.141 This may cause cyber

crimes to remain unprosecuted simply because the same do not fit to the definition of crimes

137 The Ghanaian Evidence Decree, 1975, Section 179. 138 Supreme Court of the United States of America Rules on Evidence, 2001 as quoted in Mollel &Lukumay,

supra, note, 99. 139 Indian Information Technology Act, 2000, Section 4. 140 Indian Evidence Act, 1872, Section 3; Mollel & Lukumay, supra, note 1, 100. 141 Mambi, supra, note 8, 181. “Most crimes in Tanzania are regulated by laws such as Criminal Procedure Act,

the Penal Code, the Extradition Act and other related laws. However, most of these laws are out of date and do

not take into account the development of technology that is always changing very rapidly. These might hinder

the development of e-commerce as some of the new offences are not addressed.”

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as established by criminal laws currently in force.142 Legal principles deny prosecution of

offences which are not codified because un-codified offences are prima facie not offences as

there is no offence without law. The same position was demonstrated in the case of R v. Lloyd

when the court dismissed the charges because the e-theft offence did not match the definition

of theft as established by the UK criminal laws.143

The occurrence of cyber crimes is very risky in banking business because banking

is very crucial institution in any country’s economy. But not being able to prosecute the

offence, is even riskier because offenders will be set free. Therefore, current position of the

criminal law is in twofold negative effects i.e. cyber criminals cannot be prevented to commit

other cyber crimes nor deter potential others to do the same. Even if the court of law wishes to

punish the offenders, it cannot do so because it will be in violation of the doctrine of natural

justice and go against legal principles.144 Therefore, the laws must address cyber crimes in

order to protect electronic banking.

4. Conclusion

The study shows that, banks and communication companies in Tanzania intensely

use of electronic banking. The electronic banking transactions offered in Tanzania include

ATM transactions, electronic cheques transactions, POS transactions, internet banking

transactions, telephone and mobile banking transactions, cross-border transactions, and inter-

bank electronic transactions. Yet, currently Tanzania has no adequate law regulating

electronic banking as the latter is regulated through banking laws previously enacted to

regulate traditional banking.

The only reference banking Acts make to electronic banking, is when the BoT

empowered to make guidelines, orders, circulars, rules and regulations to regulate national

payment system under which electronic banking falls. Accordingly, the Guidelines on

142 Mambi, supra, note 8, 181. “There is a great likelihood for culprits or criminals to evade their criminal

responsibility under the current law provisions. The first concern might be on the whole question of the

definition of theft under current law. For example Section 258(1) of the Penal Code [Cap 16 R.E 2002] provides;

“A person who fraudulently and without claim of right takes anything capable of being stolen, or fraudulently

converts to the use of any person other than the general or special owner thereof anything capable of being

stolen, steals that thing.” The main issue here is whether a data message or information which is intangible by

nature can be stolen, and if yes, whether the offence can fall under this definition of theft.” 143 R v. Llyod [1985] 2 ALL ER 661. 144 Nullum crimen sine lege; nulla poena sine lege, prohibition of retrospectivity, etc.

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Introduction and Operations of Auditable Card Based Electronic Money Schemes in Tanzania

and TISS and Electronic Clearing Houses Rules and Regulations were made to regulate the

electronic banking in Tanzania. However, the guidelines do not carry any legal force rather

they are mere guidelines to facilitate and regulate conducts of players in electronic banking

transactions. Similarly, the Rules and Regulations made refer only to inter-bank transactions.

Although some of the bankers seem to agree with the BoT in sense that when

players of electronic banking follows the BoT instructions documented in guidelines,

circulars, orders, directives, rules and regulations, the risks surrounding the same are cleared

or reduced. However, some of them argue that, due to inadequacy of the law, new electronic

banking products are subjected to multiple checking which delays market opportunities and

leave legal challenges unsolved. The banking Acts also gives mandate to the minister

responsible for financial matters in Tanzania to make regulations to fulfil the objectives of the

BoT Act. Through this mandate, the minister is capable to make by-laws to regulate electronic

banking. However, regulation guiding electronic banking has not been documented. This is

probably because the minister complies with the national payment system policy in which has

the vision and mission that the system should be self regulated; or the minister agrees to the

view that, law reduces business opportunities.

The Evidence Act provides for the admissibility of electronic records in evidence

only with reference to criminal proceedings but do not establish how such records should be

admissible. The Act also has loopholes as the admissibility of electronic records is not

permissible in civil proceedings and makes no reference to electronic signatures. This area is

very crucial because if electronic records in relation to civil proceedings and electronic

signatures cannot be admissible in evidence, cases from electronic banking transactions which

may rely only in electronic evidence cannot be resolved. Seeing the gravity, the UNCITRAL

proposes that, the courts should use functional equivalent approach to admit the same.

However, the UNCITRAL model laws in their essence designed to facilitate e-commerce and

not to regulate the same. In whatever the case, the admissibility of electronic records and

authentication of electronic signatures would be served better by the law rather than opting for

functional equivalent approach.

The Bills of Exchange Act requires physical presentment of the cheque contrary

to that, the cheque will be dishonoured due to violation of the law. However, the Act gives an

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option to parties involved to waive such requirements. Yet, it cannot be said that, the Act

authorises electronic cheques whereby physical presentment cannot be effected. The study

also shows that our criminal law regime lags behind technological development since cyber

crimes are not covered. Reference has been made to the Criminal Procedure Act, the Penal

Code, the Terrorism Act, the Proceeds of Crimes Act and the Anti-Money Laundering Act.

The Law of Contract Act do not provide for cyber or electronic contracts. This

hinders some electronic banking undertakings because electronic contracts do not meet legal

requirements as provided by the Law of Contract Act. Therefore, the Tanzania legal

framework lags behind technological development as it is inadequately provide protection for

the electronic banking transactions.

The author found out that, the main reason as to why up until now there is no

specific law regulating electronic banking despite the fact that banks in Tanzania engage in

the same to the maximum, is that responsible authorities are of the view tha, over regulation

hinders technological development, so it is better to leave the electronic banking self

regulated. In disagreement with the reasoning, some law experts asserted that, it is not good

at all for electronic banking or e-commerce in general to lack adequate protection of the law.

It is better for the basic aspects of it to be regulated by the law even if some aspects remain

self regulated. The author agrees with the latter stand for the reason that, it is only from the

law, that the legality of anything is driven. Therefore, it is not safe to conduct electronic

banking transactions relying only on BoT documents.

Therefore, it is an undeniable fact that lack of adequate legislation regulating

electronic banking, poses legal challenges to banks and the electronic banking undertakings.

5 Recommendations

In the line with the observations and findings of this paper, the author is of the

view that, it all comes down to one important thing in an alternative with the other. That, the

Tanzania legal regime has to change so as to adequately accommodate technological

development in electronic banking. The change can be affected by the enactment of a new

legislation or by an amendment of the existing laws. The amendment preferred should be

made to the following laws; (i) the Banking Acts; new part to be inserted in these Acts which

reads Electronic Banking. Under this part following matters to be provided; various electronic

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banking products; players in electronic banking to be named, rules of confidentiality in

electronic banking different from those applicable to traditional banking; (ii) the Law of

Evidence Act; new part to be inserted that reads Electronic Evidence which provides for

following matters; admissibility of electronic evidence in both criminal and civil trials,

electronic signature, and proof of electronic signatures; (iii) the Law of Contract Act; new part

to be inserted that reads Electronic Contracts which provide for; formation of electronic

contracts, rules of communication to be different from that of traditional contract,

applicability of the privity to contract rule, and legal rights and obligation of the parties; (iv)

Bills of Exchange Act; new part to be inserted that reads Electronic Cheques whereby non

physical presement is allowed; (v) Penal Code; new part to be inserted that reads Cyber

Crimes which provides for the cyber offences and their punishments; and (vi) the Electronic

and Postal Communication Act; new part to be inserted that reads Mobile Electronic Fund

Transfer where fund transfers through mobile phones are covered.

In the alternative, the enactment of new legislation can also be of merit. New

legislation may be only two namely: Electronic Transactions and Electronic Signarures Act

and also Cyber Crimes Act. The former is to provide for electronic contracts, electronic

banking transactions, and electronic signatures; and the latter to provide for cyber offences.

electronic banking and technological development in

Documents